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Car finance

Paying monthly? Know how car finance works first

Hire purchase, PCP or a personal loan: what each one means, what to compare, and the one check to run on the car before you sign anything.

Check the car first

Free MOT, tax and mileage. Outstanding finance in the full check.

Three ways to pay

How the main types of car finance work

Hire purchase (HP)

You pay a deposit, then fixed monthly payments. The lender owns the car until the last payment, and then it is yours.

Personal contract purchase (PCP)

Lower monthly payments, because part of the price is left as a final "balloon" payment. At the end you pay it and keep the car, hand the car back or part-exchange it. Mileage limits and condition charges apply.

Personal loan

You borrow the money and buy the car outright, so it is yours from day one. The loan is not tied to the car.

Before you sign

Compare these, not just the monthly price

  • The total amount payable, not just the monthly payment
  • The APR, the deposit and how long the agreement runs
  • For PCP: the balloon payment, the yearly mileage limit and the excess mileage charge
  • Whether the broker is paid commission by the lender, and how much
  • That the car itself is clear: no outstanding finance, write-off or theft record

Buying a car that already has finance on it?

If the seller still owes money on the car, the lender may own it. Check before you hand over any money.

Outstanding finance check

Buying soon? Read the used car buying checklist.

Will checking my eligibility affect my credit score?
An eligibility check that uses a soft search does not affect your credit score and other lenders cannot see it. A full application uses a hard search, which lenders can see. Ask which kind of search is being used before you go ahead.
What is the difference between HP and PCP?
With HP your monthly payments pay off the whole price, so you own the car at the end. With PCP part of the price is held back as a final balloon payment, so monthly payments are lower, but you only own the car if you pay that final amount.
Can I pay car finance off early?
Yes. You have the right to settle a regulated credit agreement early. Ask the lender for a settlement figure: it usually includes a rebate of some of the interest.
Can I hand the car back before the end?
Often, yes. With HP and PCP you can usually end the agreement early by handing the car back once you have paid half of the total amount payable, as long as the car is in reasonable condition. This is called voluntary termination.
Can I change my mind after signing?
For most regulated credit agreements you have 14 days to withdraw. You repay the money borrowed, plus any interest for the days you had it.
What if the car I am buying still has finance on it?
Then the lender, not the seller, may own it, and it can try to recover the car. Run an outstanding finance check before you pay, and if finance shows, ask the seller to clear it first and get proof in writing.